NJ home prices expected to rise 6 percent this year

After harsh weather slowed home sales this winter, New Jersey sales are likely to surge this spring, and home prices will rise about 6 percent this year, real estate appraiser Jeffrey Otteau said Thursday.

The increase in home prices will continue the turnaround that began in the market last year, when, according to Otteau, prices statewide posted a 4.2 percent rise, the biggest since 2005. And New Jersey had about 85,000 home sales in 2013, the best year since 2006, he said.

But Otteau also said values will rise slowly over the next several years, except in the most sought-after towns, and will not return to the peaks of the housing boom until 2022. One reason is that mortgage rates are expected to rise, making homes less affordable. Otteau predicted rates will rise to 5 percent for a 30-year fixed loan, from the current rate around 4.4 percent.

Average U.S. rates on fixed mortgages rose this week in the wake of comments by Federal Reserve Chairwoman Janet Yellen suggesting that the central bank could start raising short-term interest rates by mid-2015.

Bergen County and other counties in the northern part of the state are rebounding more quickly from the housing bust than the southern part, mostly because of proximity to good jobs in New York City and New Jersey, Otteau also said in his twice-a-year seminar for real estate agents in East Hanover. Otteau is based in East Brunswick and tracks home prices around the state.

Bergen County has only a 5.9-month supply of housing inventory on the market, lower than the statewide supply of eight months. Passaic County has an eight-month supply. In general, a supply of less than six months points to rising prices, as buyers chase a small pool of available homes.

The state's home prices are still about 22 percent below the peaks they reached in 2006, Otteau said.

'A big concern'

This year's spring market — traditionally the busiest season of the year — is likely to be active, because there's pent-up demand from potential buyers who didn't look for homes during the snowstorms of January and February, Otteau said.

"Those sales aren't lost forever; they're just pushed to a later date on the calendar," Otteau said.

But over the longer term, the housing market is likely to be affected by slow employment growth in the state, he said. The state added only 18,800 jobs last year, less than half the increase of the previous year. And New Jersey has recovered only about half the jobs it has lost since the 2007-09 recession. That means fewer people will be able to afford to buy homes, Otteau said.

"What's going on with jobs is a big concern," he said.

Otteau also said that between the slow job growth and the large number of one- and two-person households in the state, the demand for large, exurban McMansions is dwindling — especially as the baby boomers enter retirement age and start to sell these large homes.

"We are going to have enormous demand for smaller, affordably priced housing, and we haven't been building that," Otteau said.

Otteau also said that while foreclosure activity is rising in the state, it is concentrated in urban areas and towns affected by Superstorm Sandy. That suggests that more distressed properties will be coming to market in those areas, putting downward pressure on home values. But in northern, suburban towns, he said, it's unlikely to have any effect on the market.